When launching a new home business, it’s easy to get overwhelmed with the details. Often times, the tasks that seem less important can fall to the bottom of the priority list. If you’re just getting started, or even if you’ve been in business for awhile, preparing a budget for your home business is essential to maintaining control over you cash flow.

Running a home business without a budget is like driving a car with a broken gas gauge. You may think you have enough fuel in the tank, but if you hit some unexpected bends in the road or get stuck in traffic, you may find yourself stuck on the side of the road — a place where no home business owner wants to be.

Definition of a Business Budget

A budget is a forecast of how much you plan to spend on various business expenses. Most businesses develop a budget for each fiscal year, and some create additional longer-term budgets that span two, three or five years.

Most businesses adjust their budgets regularly to account for fluctuations in business activities. For example, early in the year you might have estimated that you would spend $12,000 on marketing for the year. But if your marketing efforts are working and revenues are increasing accordingly, you might double or even triple that number.

According to Denise O’Berry, author of Small Business Cash Flow, “Your budget should be a living document, not a piece of paper that ends up hidden on some dusty shelf.” She advises that business owners monitor and adjust their budgets every month and adds, “A budget will help you identify peaks and valleys in cash flow so you can anticipate them in advance and deal with the issue prior to it becoming a crisis.”

Creating Your Budget

If you use accounting software such as Quickbooks or Quicken, you can take advantage of the budgeting features in the program. Otherwise, you can create your budget manually using a spreadsheet. 

For a brand new business, the budget figures will have to be estimated. For an existing business, it’s best to analyze your past financial statements to get a more accurate assessment of spending trends. Here are some tips for deciding what to include in your budget:

Ø Make a list of every possible expense for your home business from gasoline and office to supplies to equipment purchases and overhead expenses.

Ø Make adjustments for fluctuations in your home business. For example, if the holiday season is a busy one for you, your advertising expense may be higher in the months prior.

Ø Think about the future. Will you have significant changes to your overhead expenses? Are you planning to add payroll later in the year—or next year? Will you make any major purchases in the future? This is the time to think about the overall goals for your home business and what the future holds.

Ø As your business grows, make sure to adjust for the increase in your cost of goods sold or other costs of doing business. Your costs will likely increase in step with your revenues.

Ø Your budget can be as general or as detailed as you like. For example, you may have a single line item for advertising costs, or you may have several line items that detail each advertising program that you will use.

Here are some common business expenses:

Advertising; Payroll; Insurance; Security; Computer; Equipment; Website Maintenance; Gasoline; Travel; Office Supplies; Postage; Education; Subscriptions; Business Stationary; Loan Payments; Wholesale Cost of Inventory; Accounting Services; Legal Services; Cellular Service; Phone Service; Utilities; Contracted Services; Banking Fees.